CRITICAL CONTRACT LESSONS FOR AIRCRAFT SALES

Singapore Airlines Ltd v CSDS Aircraft Sales & Leasing Inc [2021] SGHC(I) 3

The Facts

A recent decision from the Singapore International Commercial Court provides an important reminder of the practical issues that can arise in aircraft sales.

In 2018, California-based CSDS Aircraft Sales & Leasing offered to purchase a B777 airframe from Singapore Airlines. The parties agreed on a purchase price of US$6.5 million, with CSDS paying a $250,000 deposit. The parties entered into an Aircraft Purchase Agreement governed by English Law which stated that “time is of the essence”.

One of the conditions precedent to be satisfied by CSDS before Singapore Airlines was obligated to deliver the aircraft was to pay the balance of the purchase price to an escrow agent. As often occurs in aircraft sales, there were delays during the inspection process, and over the months leading up to 31 October 2018, CSDS failed to pay when required on multiple occasions. CSDS repeatedly insisted that Singapore Airlines first place the Bill of Sale in escrow before it would transfer funds. This was not required under the contract, though it may have been discussed during pre-contract negotiations as being a requirement of CSDS’s lender.

The parties sought to resolve the matter but ultimately CSDS again failed to pay even after Singapore Airlines sent the Bill of Sale to the escrow agent. On 31 October SIA commenced proceedings, seeking specific performance or damages. Shortly after it also sent a termination letter accepting CSDS’s repudiation of the contract.

The Decision

The Court found that CSDS breached the Aircraft Purchase Agreement by failing to pay the purchase price to the escrow agent by the last agreed due date. The Court also agreed that CSDS had repudiated the contract given its “history of delay, prevarication and procrastination” and the fact that the contract stated time was of the essence. Singapore Airlines was therefore entitled to terminate the agreement and obtain damages for breach of contract.

The Court also found that CSDS had no right under the contract to demand that Singapore Airlines place the Bill of Sale in escrow before it paid the purchase price. While the parties may have discussed this during contract negotiations, the final wording in the signed contract was clear.

Key takeaways

• The contract is the contract - It is an important to clearly document all key terms in the contract including the requirements of the Buyer’s lender. You may not be able to rely on pre-contract discussions, even if they are documented in emails or other communications.

• Closing sequencing is key – The closing sequence should clearly set out the process to be followed by both parties.

• Deposit should cover potential losses – The Seller should ensure that the deposit paid by the Buyer is sufficient to cover your likely damages if the deal falls through. Specific performance will not always be available in aircraft sales as damages will usually be an adequate remedy.

• Time is of the essence – In this case, the inclusion of this clause helped the Court find that the Buyer had repudiated the contract.